Markets Responding to Chinese GDP Data; German IFO and UK Retail Sales Later Today
During the Asian session, markets were operating with almost no economic data to provide guidance. Some argue that this is similar to driving blindfolded so only the more daring traders were looking to build on their positions. The main news of the day centered on the strong data releases that were seen in China (CPI and GDP numbers) which have stoked speculation that we will be seeing interest rate hikes in China, sometime in the near future.
The currencies market didn’t commit to any large moves, and remained relatively range bound through the Asian session. We had seen some heavy losses in the risk currencies just prior to this, so the markets reacted with some profit taking and consolidation as we wait for more economic data.
Chinese equities were a good example of this recovery, as they were able to regain some of the recovered a 2.9% drop that we saw yesterday. The property 7 sub index saw a great deal of volatility after the mayor of Shanghai held a press conference to discuss the particulars of the plan for new property taxes in the city.
On the whole, the U.S. dollar drifted lower after making some significant gains during the previous session. All of the speculation that the strong data in China might lead to price instability (and the inevitable rate hikes that would follow) was the main driver in keeping risk assets under pressure, which has allowed the Dollar to make some bounces after hitting 2-month lows.
Commodities were also suffering because of these issues and this had its typically negative effect on the AUD and CAD as well. But the CAD did find some support after releasing a strong wholesale sales report (an increase of 1.2% monthly against expectations of 0.4%). The country’s leading indicators also came in positively.
The GBP was a laggard today on the poor CBI total orders survey and the USD/JPY was able to make gains back to the 83.0 level as US bond yields firmed found some buying activity.
Officials from the Swiss National Bank were making headlines after discussing the risks of a strong Swiss Franc. The damage, they said, would be to exports and overall growth, but member Hildenbrand suggested that the Swiss economy has remained relatively strong.
In U.S. data, jobless claims dropped sharply, hitting the 400k mark once again, which shows us that last week’s rise to 441k might not be indicative of the wider trend. Existing home sales cam in higher than consensus expectations, which was surprising because we had seen some disappointing numbers in housing starts data earlier this week. Existing home sales grew 12.3% on a monthly basis (increasing to 5.28m units). Leading indicators also came in positive but the Philly Fed index was below market forecasts for the headline number. Some of the report’s details, however, were encouraging: new orders are much higher now than the previous number (the strongest since September 2004) and the labor component showed increases monthly as well (the biggest monthly increase in 7 years).
The market’s response to the strong data was, of course, a sell off in U.S. bond yields, and this was a primary driver for the sharp dollar moves that we saw during the previous session. U.S. equities shrugged off this data and registered losses fell for the second straight day. This move is calling into question whether or not the 7 week rally is finally coming to an end.
The European session will see some data releases, with the Swiss money supply report and the country’s and real estate index. The German IFO surveys and the UK retail sales report will also be key factors to watch. There is no major data during for the U.S. but we will see Canadian retail sales later in the North American session.